Trans Pacific Partnership: Getting Bogged Down in the Details

By Taylor Dundas

http://opencanada.org/features/blogs/roundtable/the-wrong-trade-agreement/

Of the major trade agreements currently in the works, one that has garnered a wide amount of media scrutiny and generated considerable political unrest has been the Trans Pacific Partnership from here on known as TPP. Of all of the concerns raised with TPP, the qualm that it provides little economic benefit and seeks only to further the interests of big business, is perhaps the most prominent. The TPP in its most general form is a free trade alliance between 12 major countries in the Asia-Pacific region including major countries on the eastern side of the ocean such as America and New Zealand. China, the world’s second largest economy, has not been included in the agreement. Altogether the trade agreement would encapsulate 40% of the world’s GDP and 30% of global trade.

As previously mentioned, the major issue behind the trade agreement has been that it purportedly provides little economic benefit and seeks only to further the interest of large multinational corporations at the expense of several domestic industries. The effects of these arguments are mitigated, however, when one peers through the convoluted landscape of the TPP agreement to see the bigger picture. First off, TPP is expected to add an additional $300 Billion USD to global output once implemented. There is, however, the risk of a deal far removed from the version promising $300 Billion USD in additional global production. This would involve a deal of the lowest common denominator, where specific industries within each participating country would be protected resulting in an agreement hardly epitomizing free trade and lacking many of the benefits of specialization that the free trade version could provide. The issue here is a misunderstanding of comparative advantage, focusing on the possibility that one countries advantage in a certain industry could wipe out the same industry in another country through free trade, robbing the less efficient country of quality jobs. This could decimate not only the industry, but also the well being of entire families, towns and cities that depend on that specific industry.

Additionally, individuals in working class America see the combination of the following facts as indicative of a corporate and politically charged agreement seeking only access to cheaper production methods and higher profits at the expense of American jobs. These facts include the involvement of major corporations in nearly every aspect of the trade negotiations, the secrecy of the negotiations, and the prohibition of congress to debate and amend the agreement due to the fast track process. Individuals see this as a sure sign of future job outsourcing to countries with cheap labor.

What these individuals are not considering however, is that the bigger picture could have a greater benefit for the global community. Comparative advantage will ensure that goods are being produced in the cheapest possible locations providing low prices. It will create jobs in American industries including high technology and various other services industries as countries in the agreement will require theses services, growing exponentially as they develop. With lower costs of trade there will be higher demand for the products of small countries with depressed wages, increasing demand for their currency and raising the purchasing power of their wages (assuming no intervention). Foreign investment will pour in early with lower barriers to trade combating the import inducing nature of currency appreciation. These potential advantages, among many others, could be squandered if too many protectionist concessions are made, at which point the agreement becomes utterly pointless.

There are many issues with the “fairness” of TPP. The agreement could certainly hurt a lot of people however, the potential benefits to society outweigh the costs in my opinion. The agreement could further the goal of a global free market economy, discourage the presence of state owned enterprises, and facilitate capital flows into developing countries along with providing up to $300 Billion USD in additional production to the global economy. While there are various forex and other risks associated with this “freeing” of capital and trade, it would be foolish to think that this agreement is not relevant to enhancing quality of life around the globe. Along with the potential benefits I believe that the secrecy surrounding the talks and the need to fast track the agreement is necessary to maintain the effectiveness of the agreement. Allowing congress to amend the agreement would lead to individuals trying to protect their states industries; protectionism could come into play and the agreement would be less effective than it would have been without being amended.

Besides the major trade implications of TPP, there is the oft overlooked aspect of standardizing international trade laws, competition and other metrics of international commerce. This could be very important in establishing a framework for a future globally free market economy and necessitates the input of major corporations that are the main players in international trade. Ignoring or refusing their input could cause the TPP to become just another inefficient government managed project that misses its target due to inattention to detail and lack of industry experience

There are obviously many other lenses through which one could look at the trade agreement, however, viewing it without considering the benefits presented through the theory of comparative advantage and the potential generated from beginning to build a framework for a globally efficient economy.

References:
http://www.economist.com/blogs/banyan/2014/02/trans-pacific-partnership
http://www.moderatemajorityusa.org/why_you_should_give_a_shit_about_the_tpp
http://www.latimes.com/nation/politics/politicsnow/la-pn-trans-pacific-partnership-20140219,0,6747764.story#axzz2uCsFQi4b

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